A "Fame-Hungry" Speculator in New York Raises Oil Prices to over $100 a Barrel
Walid Khadduri Al-Hayat - 06/01/08//
Why have oil prices suddenly risen to over $100 a barrel?
The price range for oil in the final days of 2007 was between $90 and $95 a barrel. On the first day of transactions in international markets, 2 January 2008, the price of oil on the New York (NYMEX) rose above the psychological barrier of $100, with no specific reason or unexpected events taking place. The website of the BBC-English service posted an item saying that behind the sudden rise was an obscure trader in New York who wanted to enter his name in the history books, so that he "tell his grandchildren that he pushed the price of oil above $100.' He purchased 1,000 barrels of crude oil, which is the smallest amount with which one can participate in the NYMEX auction, pushing the price above $100 for a period of time. However, this deal was the only one on the market that day, in which the price of oil rose above $100 a barrel; the price then fell to around $99.40 a barrel. This trader lost around $600 as a result of his adventure; the price then rose again later, above $100 for a second time, after the announcement the next day that the US commercial oil reserve had fallen for the seventh week in a row.
Of course, this simple case indicates the important role of speculators in open markets in London and New York, especially when the amount of transactions is limited, as is the case in this example, and if we compare the size of the "deal," i.e. 1,000 barrels, to the amount of oil that is traded daily, which is around 85 million barrels.
As usual in such cases, the rise was attributed to geopolitical reasons, such as the attack by rebel forces in Nigeria against employees of oil companies working in Port Harcourt and the increase in acts of terror and sabotage by al-Qaida in Algeria, with the possibility of their expansion to include the oil sector. Here, the fear is that these two African states have recently begun to supply the American market with higher amounts of crude oil, after a reduction in supplies from Mexico and Venezuela. Analysts fear the repercussions of political unrest in Pakistan and neighboring countries after the assassination of the opposition leader Benazir Bhutto and the repercussions of the Turkish invasion of northern Iraq, by land and by air, and especially after the recently stability of and growth in exports of Kirkuk's oil.
Of course, various economic factors play their role as well in the series of price rises. There are expectations of a reduction in the level of US interest rates and the consequences for the price of the dollar, which is low in any case. There is also the role of the speculation by financial institutions and their attempt to benefit from the market fluctuations to make bigger profits; the cold weather in the northern hemisphere, especially in Europe and the US; the impact of storms on anchoring tankers in US ports, which has involved delays; and the drop in the US commercial reserve for the seventh week in a row and its impact on market psychology.
At the end of the day, despite all of these diverse reasons, and the role of speculation, which plays a big role in price fluctuations as the BBC item indicates, there remains an important reason behind the price rise - the sustainable economic growth in big developing countries such as China and India, and thus the unprecedented growth in demand for crude oil in recent years, not to mention the US itself.
The International Energy Agency, which represents the interests of oil consuming industrial countries, published a valuable and wide-ranging report at the end of 2007 about energy markets in China and India. The report said that China and India are the new giants in the international economy. Their growth, which is considered unprecedented, will lead to an improvement in the standard of living of their populations, and it isn't reasonable for them to halt this growth on purpose to solve international problems.
As for the future, the report adds that the importance of China and India on the international level for energy will grow in the coming decades, and this will be reflected by rising economic growth, manufacturing, urban growth and the expansion of urban populations, with a perceptible improvement in the standard of living. Energy growth rates in the two big countries are expected to reach around 3.2% in China and 3.6% in India, and that energy growth rates are much higher than the rates of the rest of the world's countries, where the figure does not exceed 1.5% annual growth. If these high growth rates are attained by the two countries in the future, this will mean that they constitute around 45% of the increase in world consumption of energy by 2030.
There are many questions that arise upon investigating such matters even further, such as: Is there enough oil to cover this increasing demand for energy, especially with the spread of the "peak oil" theory in western states, which doubt the reserve figures of OPEC countries? The problem with this new-old theory, which finds listeners whenever oil prices rise and spreads fear and anxiety among some analysts, is that its viewpoint cannot be defended in realistic terms. The proponents of this theory cast doubt and lies without any convincing material evidence. Holding fast to this theory means ignoring the world's realities as we live them today; more important is the question of how we will live these realities tomorrow.
The increase in the energy consumption rate worldwide does not at all mean that we will rely only on the oil field reserves that we are aware of today. There is, first of all, the technology that assists us in extracting bigger and bigger amounts from these same fields. Instead of extracting only 15% of an oil field's reserve, for example, technology can let us obtain 50% of this reserve. Another forms of technological progress involves manufacturing petroleum products free of CO2 directly from natural gas, as is taking place in Qatar after months of cooperation with the South African firm Sasol. These two big scientific discoveries and their success in economic terms will lengthen the oil era and help compensative for the two big challenges facing the petroleum industry: the discovery of a limited amount of giant fields in recent years to make up for the loss in current production, and the issue of pollution, which is worrying public opinion around the world.
However, along with these two scientific discoveries, there is the issue of alternatives. When talking about expanding the use of energy, this is not limited to the use of oil. As is well-known, petroleum products are extensively in the transportation industry, while alternative energy sources (solar, nuclear, wind) are used in electricity production; they are all renewable sources of energy, even if some involve political or environmental problems when it comes to expanding their use, such as with nuclear energy, for example.
These examples, if they indicate anything, it is the lack of simple and ready answers to explain the daily fluctuations in oil markets these days, because of a variety of complicated factors that have to do with the industry itself, whether this involves supply or demand.
*Specialist in energy affairs
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